The process behind buying a home can be both invigorating and intimidating. Buyers remain nervous as we continue to see low inventory while prices continue to rise as high as 25% more than the average selling price but despite the nerves, there’s also a lot of excitement that comes with buying a new home whether it’s for an upgrade, relocation, or a new job. If you are unsure whether you are ready the process needed to buy a home, here are some tips to help. You could be closer to owning your dream home than you might think!
Leverage Today’s Interest Rates To Help Fund Your Down Payment
One of the largest challenges homebuyers face is having enough money for a down payment. However, buyers now have many options for mortgages. 2021 has presented some of the lowest interest rates the country has seen. This year, with 30-year mortgage loan rates averaging 2.9%, 1% lower than a year ago, some institutions are offering as little as 0% down so it’s important to capitalize today, according to The Mortgage Reports.
According to Forbes Advisor, economists expect interest rates to rise as high as 3.5% next year, compared to the current average rate of 2.9%. With current interest rates remaining low, buying a home now allows homebuyers to lock in on lower monthly payments without breaking the bank. This allows the homebuyer to have available cash to use for other financial needs and goals or home renovations and projects.
Staying Competitive Without Cash
In today’s market, many home buyers worry about competing with other buyers making cash offers. Most of us don’t have a huge pile of cash to buy a home, but there are other options you can take advantage of to satisfy sellers, one being a certified approval letter. Known as the second-best thing to a cash offer, it provides buyers a competitive advantage over other buyers. Be sure to consider all of your home buying options that will help you close the deal!
Those of you with a high amount of debt may think you do not qualify for a mortgage but that’s not necessarily always the case. A key component to understanding what you will qualify for is learning what your Debt-to-Income Ratio (DTI) is. There are strategic ways to lower your DTI while you’re on the hunt of purchasing a home but it varies from person to person.
The first step in any debt reduction play is to write down all your monthly payments in order of largest payment to smallest. This list should include the extras you probably have set up on auto-pay like streaming, music, and app subscriptions, and while lenders don’t use those payments to qualify you for loans, it gives your insight into where your money is going each month. Creating this list allows you to see your financial life on one easy page. From there, you can start looking at which payments are a must and which ones you can live without. Sometimes increasing your cash flow is as easy as finding better-priced cell phone plans or insurance plans. In other situations, it means consolidating monthly payments into one payment. A unique way to accomplish this is by using a cash-out refinance, but it’s critical you involve a professional lender as this would involve the homeowner getting a contingency approval. It’s not uncommon to have clients with a 50%+ DTI today, take applications where they are going to use the equity in their home to pay off debts, which then positions their DTI percentage to be low 40s or even less once the loan closes – making them a more attractive borrower. But again, every situation is different, so having a reliable and qualified lender to help you identify those chess-playing moves is critical.
The Power of Budgeting!
We get it. Budgeting is difficult! Luckily there are personal finance apps, websites with tips, and budgeting experts available to you if you need to set a budget. Despite budgeting being a daunting task, there are easy tools that can help calculate interest rates and down payments. However, it’s important to understand the budget-friendly home buying options available to you, one being a certified pre-approval letter. Today’s market is making it almost nearly impossible to purchase a home given all of the cash offers, but a certified pre-approval letter is the second best thing to a cash offer and is a budget-friendly way to have a competitive advantage over other buyers.
Secondly, lenders like AmeriSave Mortgage Corporation, have budget-friendly tools like the Lock and Shop option which allows home buyers to shop around for their home with peace of mind of not only knowing what they can afford but also the freedom to focus on finding their dream home without worrying about a fluctuating rate.
Ultimately, you want to find a lender you can trust — trust that they will tell you what’s best for your situation, rather than trying to get you the biggest mortgage when in reality, that could really hurt you in the future.
Credit History – Don’t Let it Repeat
With many things affecting your mortgage rate, it’s important to understand what influences your future in homeownership – your credit score being one of them. If you have a poor credit history, programs tailored to support you in your homeownership journey are available. Be sure to ask your mortgage broker about the different programs available that will help you improve your credit.
Self-employed Americans have faced much adversity throughout the pandemic. If you are self-employed now, you may have found it hard to prove active income to qualify for a mortgage but fortunately, by providing documentation such as your income from previous years, tax returns, and balance sheets, you will likely increase your chances of qualifying for a loan. However, be sure to double-check with your lender on the appropriate documentation so you’re set up for success.
Despite the low inventory, high prices, and personal financial huddles home buyers are facing in today’s market, there are ways you can make your dreams of owning a home come true. By paying close attention to today’s interest rates and down payment options and by being mindful of your debt, budget, and credit history you could be even that much closer to owning your next home!
Author: Founded in 2002, AmeriSave Mortgage Corporation is a leading mortgage lender best known for pioneering the first truly digital mortgage experience to borrowers. With six major loan centers located across the U.S., AmeriSave is direct to consumer lender, licensed in 49 states and D.C., FNMA, FHLMC, GNMA approved. For more information, visit www.amerisave.com.